* Part 1

Shrinking trade volumes pose a risk

for this year’s growth hopes

After hitting a record $775 billion in 2022-23, India’s exports are off to a rocky start this year. Outbound shipments of goods, that had crossed $450 billion last year, have contracted 15.1% through the April to June 2023 quarter. June’s provisional export tally, just shy of $33 billion, was the lowest figure in eight months and reflected a 22% drop year-on-year, a scale of contraction last seen amid the initial months of the COVID-19 lockdowns. There has been a decline in the import bill as well over the first quarter, albeit at a slower pace than exports. This 12.7% dip is largely driven by the prevalence of lower commodity prices this year compared to the same quarter last year, when the import bill had shot up 44.5% after the Russia-Ukraine conflict erupted. Excluding gold and oil imports, the value of shipments coming into the country is down 10.5% in the first quarter. Sequentially, the decline in non-oil, non-gold imports has accelerated from 2% in May to 16.7% in June, indicating that domestic demand triggers are also ebbing. While this implies the goods trade deficit may not widen as it had last year, it does not augur well for domestic growth impulses that form India’s key armour against the gathering global slowdown.

Services exports are still growing but at a far more sombre pace. That IT majors, who drive most of these intangible exports, have been tentative and decidedly downcast about their earnings guidance for this year, indicates the tide may get worse. Frail global demand may not just impact trade flows but also hurt foreign direct investments even as tightening monetary policies could exacerbate financial market volatility. As the Finance Ministry noted recently, if these trends deepen, the 6.5% growth hopes for the year could wobble. But retail sales in the U.K. have improved in June, although fractionally. The U.S. Treasury Secretary Janet Yellen has exuded confidence that a recession in the world’s largest economy may be averted after all. Inflation numbers have eased in Europe and the U.S., triggering hopes of interest rate pauses instead of further tightening to throttle demand and activity. While driving on the hills, one has to prioritise the movement of vehicles climbing up, even if that means reversing a descending automobile up to a point of safe passage. Within the overall downhill trend of exports, the few bright spots such as rising shipments of electronic goods must flourish while trade curbs or obstacles affecting other products must be reviewed. Indian policymakers should redouble efforts to improve competitiveness vis-à-vis rivals such as Vietnam, and keep a closer watch on divergent trends in different markets to help exporters capture incremental, even if fractional, global demand.

Why was Tamil Nadu Minister V. Senthilbalaji arrested by Enforcement Directorate officials? Are ED officials the same as police officers? Why has the Supreme Court cautioned against continued judicial interference in money-laundering cases?


The story so far:

In a major setback to Tamil Nadu Minister V. Senthilbalaji, the Madras High Court on July 14 upheld the legality of his arrest by the Enforcement Directorate (ED) and his subsequent remand in judicial custody in a money-laundering case linked to a cash-for-jobs scam. Justice C.V. Karthikeyan, in his order as the third judge after a two-member Bench gave a split verdict, ruled that the ED can subject any person accused in a case booked under the Prevention of Money Laundering Act (PMLA), 2002, to custodial interrogation and that the Minister can be taken into custody even after the expiry of 15 days from his arrest. Mr. Balaji and his wife have since then moved the Supreme Court to challenge the HC verdict upholding his arrest.

What did the High Court rule?

The central question of the case was whether the ED has the power to seek custody of a person arrested. The judge accepted senior advocate Kapil Sibal’s argument on behalf of the petitioner that ED officials are not police officers as per the law laid down by the Supreme Court in Vijay Madanlal Choudhary versus Union of India (2022). However, he noted that the sessions judge remanded Balaji to judicial custody as per Section 167 of the Code of Criminal Procedure (CrPC). Since Section 65 of the PMLA stipulates that the provisions of the CrPC shall apply subject to the condition that the same are not inconsistent with those of the PMLA, Section 167 CrPC should be applicable mutatis mutandis (making necessary changes without altering the essence) and that the word ‘police’ has to be read as Investigating Agency or the Enforcement Directorate.

It was also observed that the Court designated ED officials to not be police officers only for the reason that the statements given to the latter in any criminal case would not be admissible in evidence before the trial court under the CrPC, whereas statements given to the former were admissible in evidence under the PMLA. However, this observation could not be stretched to the extent of denying the ED an opportunity to subject the accused to custodial interrogation for unearthing crucial facts related to the alleged crime, the judge added.

The court also took into consideration the Supreme Court’s ruling in Y. Balaji versus Karthik Desai (2023) where the court refused to discharge Mr. Balaji in the cash-for-jobs scam in May this year by stating that when the accused and the complainant arrived at a compromise, they also compromised on ‘justice, fair-play, good conscience and the fundamental principles of criminal jurisprudence.’

What has the SC held in the past about the PMLA?

In its landmark 2022 ruling on Vijay Madanlal Choudhary versus Union of India, the Supreme Court upheld various provisions of the PMLA which relate to the powers of arrest, attachment, search, and seizure conferred upon the ED. The court was of the opinion that all the provisions under PMLA have a reasonable nexus with the objects sought to be achieved by the Act to effectively prevent money-laundering.

Section 19 of the PMLA lays down the manner in which the arrest of a person involved in money-laundering can be effected. The provision had been challenged on the ground that it confers unequivocal power of arrest without a warrant. Dismissing such a contention, the court ruled that the provision has been structured with inbuilt safeguards that prevent the possibility of abuse of power by ED officials. The court added that, ‘The purposes and objects of the 2002 Act... is not limited to punishment for offence of money- laundering, but also to provide measures for prevention of money- laundering. ... This Act is also to compel the banking companies, financial institutions, and intermediaries to maintain records of the transactions and to furnish information of such transactions within the prescribed time in terms of Chapter IV of the 2002 Act. Considering the above, it is unfathomable as to how the authorities referred to in Section 48 can be described as police officer.’

Furthermore, in P. Chidambaram versus Directorate of Enforcement (2019), the Supreme Court rejected a prayer for anticipatory bail with respect to an offence of money-laundering and proceeded to grant custody to the ED. The court reasoned that in a case of money-laundering which involves many stages of placement and layering of funds, a ‘systematic and analysed’ investigation is required which would be frustrated if pre-arrest bail is granted.

The court also cautioned that it must only exercise its inherent powers under Section 482 of the CrPC to interfere in an investigation into a cognisable offence if it is convinced that the power of the investigating officer is exercised mala fide or where there is an abuse of power and non-compliance with the provisions of the CrPC.

“It is not the function of the court to monitor the investigation process so long as the investigation does not violate any provision of law. It must be left to the discretion of the investigating agency to decide the course of investigation,” the court added.

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